Bankers Adda: Fiscal System in India 29-01-2015

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Fiscal System in India

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A country's fiscal system is the complete structure of government revenue
and expenditures and the framework within which its agencies collect and Below 120
disburse those funds. This system is governed by a nation's economic policy,
which comes from decisions made by the governing body. 120 - 130
Fiscal policy is the means by which a government adjusts its spending levels 130 - 140
and tax rates to monitor and influence a nation's economy. It is the sister 140 - 150
strategy to monetary policy through which a central bank influences a nation's 150 - 160
IBPS CLERK 2014
money supply. These two policies are used in various combinations to direct
GK Power Capsule - a country's economic goals. Above 160
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IBPS PO 2014 IBPS INTERVIEW COACHING AT

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IBPS PO IV Written
Test Scores There are 3 parts of the fiscal policy
IBPS PO IV Written 1. Public Revenue.
Test Result 2. Public expenditure.
Computer Capsule 3. Public debt.
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Hindi Version Revenues: are the source of income realized by the government and
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Notification FAQs 1. Revenue receipts : which consists of revenue from regular sources
IBPS PO 2014 like Taxation revenues: eg., receipts from corporate tax, income tax, excise
Notification tax, Excise duty, custom duty, service tax etc.Non tax revenue: which include
interest on loans, dividends from Public sector units, Fees and stamp duties.
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VACANCIES) 2. Capital receipts: Which refer to those inflows to government that are not
in the nature of regular income, But are repayments / recoveries, or proceeds
GK Power Capsule - from sale of assets. Other receipts like Disinvestment (selling some shares
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of a PSU) comes under this head. Borrowings are simply the deficit which
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Expenditure: are the expenses incured by govt and are divided into :
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Non plan expenditure: These are on going expenditure not covered under the 5
Notification
- year plans. Non-plan revenue expenditure is accounted for by interest
payments, subsidies (mainly on food and fertilisers), wage and salary
RBI ASSISTANTS - 506 payments to government employees, grants to States and Union Territories
VACANCIES governments, pensions, police, economic services in various sectors, other
RBI Assistants - general services such as tax collection, social services, and grants to foreign HOW MUCH DID YOU SCORE IN
Notification governments. Non-plan capital expenditure mainly includes defence, loans to IBPS CLERK IV?
Financial Awareness public enterprises, loans to States, Union Territories and foreign governments.
Below 80
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RBI Assistant Plan expenditure: India has adopted economic planning as a strategy for 80 - 90
Vacancies: Doubts economic development. For stepping up the rate of economic development 90 - 100
Clarified five-year plans have been formulated. So far ten five-year plans have been 100 - 110
Last Year Questions completed. The expenditure incurred on the items relating to five year plans is
termed as plan expenditure. Such expenditure is incurred by the Central 110 - 120
Government. 120 - 130
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130 - 140
IBPS RRB Written A provision is made for such expenditure in the budget of the Central
Result Out 140 -155
Government. Assistance given by the Central Government to the State
Admit Card Governments and Union Territories for plan purposes also forms part of the Above 155
RRB Capsule plan expenditure. Plan expenditure is subdivided into Revenue Expenditure
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FAQs projects covered by the 5 - year plans as decided by the various ministerial
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VACANCIES Revenue expenditure - It is payments incurred for day - to - day running of Gwalior
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consumption in economy.
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increased investment with spending diverted towards cost associated with
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Capsule (Hindi) acquisition of assets that may include investments in shares, infrastructure as SBI ASSOCIATE CLERK TEST
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SBI Clerk Computer Other Important Terms:
Capsule Public debt: The money borrowed by the government is eventually a burden
on the people of India, and is, therefore, called public debt. It is split into two

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Bankers Adda: Fiscal System in India
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http://www.bankersadda.com/2015/01/fiscal-system-in-india.html
29-01-2015
on the people of India, and is, therefore, called public debt. It is split into two
heads: internal debt (money borrowed within the country) and external debt
(funds borrowed from non-Indian sources).
Usually the government spends more than what it earns through various
sources. This shortfall, which is met with borrowed funds, is called fiscal
deficit. Technically, it is the excess of government expenditure over 'non-
borrowed receipts' revenue receipts plus loan repayments received by the
govt plus miscellaneous capital receipts. Fiscal deficit for FY13 is estimated
at INR.5.64 lakh crore, revenues of INR 9.18 lakh crores less expenditure of
INR 14.82 lakh crores.
Fiscal deficit is measured as a percentage of GDP, hence INR 5.64 lakh crore
/ GDP of INR 100.74 lakh crores work out to estimated fiscal deficit of 5.6% of
GDP.
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Revenue Deficit: It is the excess of revenue expenditure over revenue
receipts. All expenditure on revenue account should ideally be met from
receipts on revenue account; the revenue deficit should be zero. In such a
situation, the government borrowing will not be for consumption but for
creation of assets.
Effective revenue deficit: This is an even tighter number than the revenue
deficit. It is revenue deficit less grants for creation of capital assets.
Primary deficit: It is the fiscal deficit less interest payments made by the
government on its earlier borrowings.
Deficit and GDP: Apart from the numbers in rupees, the budget document
also mentions deficit as a percentage of GDP. This is because in absolute
terms, the fiscal deficit may be large, but if it is small compared to the size of
the economy, then it's not such a bad thing, especially if it is being used to
create production capacities.
HOW MANY QUESTIONS DID YOU
ATTEMPT IN IBPS CLERK IV?
Types of fiscal policy
Less than 100
Fiscal policy has an effect on each of these categories. There are two types
Between 101-110
of fiscal policy: Expansionary and Contractionary.
Between 111-120
Expansionary Fiscal Policy Between 121-130
When an economy is in a recession, expansionary fiscal policy is in order. Between 131-140
Typically this type of fiscal policy results in increased government spending More than 141
and/or lower taxes. A recession results in a recessionary gap meaning that
aggregate demand (ie, GDP) is at a level lower than it would be in a full Change your vote
employment situation. In order to close this gap, a government will typically Votes so far: 41185
increase their spending which will directly increase the aggregate demand Days left to vote: 291
curve (since government spending creates demand for goods and services). At
the same time, the government may choose to cut taxes, which will indirectly
affect the aggregate demand curve by allowing for consumers to have more
money at their disposal to consume and invest. The actions of this LATEST FROM BA ASSOCIATES
expansionary fiscal policy would result in a shift of the aggregate demand
curve to the right, which would result closing the recessionary gap and helping SSC Adda
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an economy grow.
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Contractionary Fiscal Policy Shortcut to success is Practise
- Ravi Pargar (SBI PO 2014)
Contractionary fiscal policy is essentially the opposite of expansionary fiscal
policy. When an economy is in a state where growth is at a rate that is
getting out of control (causing inflation and asset bubbles), contractionary IBPS PO IV Interview Batches at
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fiscal policy can be used to rein it in to a more sustainable level. If an
economy is growing too fast or for example, if unemployment is too low, an
inflationary gap will form. In order to eliminate this inflationary gap a SBI CLERK INTERVIEW BATCHES
government may reduce government spending and increase taxes. A
decrease in spending by the government will directly decrease aggregate
demand curve by reducing government demand for goods and services.
Increases in tax levels will also slow growth, as consumers will have less
money to consume and invest, thereby indirectly reducing the aggregate
demand curve.
Conclusion On Fiscal Policy
The objectives of fiscal policy such as economic development, price stability,
social justice, etc. can be achieved only if the tools of policy like Public
Expenditure, Taxation, Borrowing and deficit financing are effectively
used.Though there are gaps in India's fiscal policy, there is also an urgent
need for making India's fiscal policy a rationalised and growth oriented
one. The success of fiscal policy depends upon taking timely measures and HOW MUCH DID YOU SCORED IN
their effective administration during implementation. IBPS RRB - OFFICE ASSISTANT?
Like Sachin Tichkule, Abhishek Biswal and 286,364 others like this.
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Bankers Adda: Fiscal System in India 29-01-2015

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